CHICAGO--(EON: Enhanced Online News)--With the implications of the 2016 General Election beginning to come
into focus, tax directors are looking closely at the new administration
to gauge how potential tax reform might impact their financial reporting
strategies and ultimately their bottom lines. In fact, all the tax
executives who participated in this year’s survey said that reform is at
least somewhat likely under the new administration, with 60 percent of
those saying reform was very likely, according to the third annual BDO
Tax Outlook Survey.

“Now that the country-by-country reporting deadline is
looming, businesses need to take steps to proactively adjust their
financial reporting practices and prepare for future changes related to
transfer pricing mechanisms.”

Reforms aimed at driving growth of American business top tax directors’
reform wish list, with 40 percent hoping for a reduction of the
35-percent corporate tax rate, according to the survey. One in five (20
percent) of respondents point to tax incentives to repatriate foreign
earnings as a top interest, while 17 percent cite a shift to a
territorial tax code.

The portion of directors interested in lowering the tax burden of
capital gains was nine percent, up from two percent in 2016. And just
two percent cited changes to the tax treatment of carried interest,
discussed by both candidates throughout the campaign, as their primary
ask.

In addition, more than a third of respondents (34 percent) highlight
planning for federal tax reform as their primary tax concern in 2017, up
from 21 percent in 2016. Given talk from both the GOP and the president
on reforms ranging from cutting investment income taxes to enacting a
border adjustment tax, businesses will undoubtedly be adapting to a
changing landscape throughout the coming year.

Despite the strong belief that reform will occur, most tax executives
(51 percent) believe congressional gridlock will be the primary obstacle
to tax reform over the next four years. Others point to conflicting
legislative priorities (19 percent), public opposition to proposed
reforms (13 percent) and international actions related to multinationals
(12 percent) as potential roadblocks. Just five percent believe the
outcome of the 2018 midterm election will stall reform efforts.

“Despite the widely-debated initiatives discussed during President
Trump’s first months in office, steering federal tax reform is more like
an aircraft carrier than a speedboat. It takes time and effort to change
course,” said Matthew
Becker, partner in the national Tax practice at BDO
USA, LLP. “Any changes that do come to pass may look significantly
different than what’s being proposed today, so businesses should stay
abreast of how the potential outcomes could impact their bottom line and
remain ready to pivot their tax planning strategies when important
developments arise.”

While domestic tax reform continues to dominate headlines, major efforts
on the international stage also remain a source of anxiety for tax
executives. Unsurprisingly, 82 percent of the companies surveyed conduct
operations outside of North America, and just over half (54 percent)
plan to enter or expand into international markets this year.

As tax executives look to optimize global growth, international tax
planning is top of mind. But navigating the waters of international
regulations is never a simple task, especially following the publication
of the Organization for Economic Co-operation and Development (OECD)’s
action plan designed to address tax base erosion and profit shifting
(BEPS) in 2015. The highest portion of those surveyed (35 percent) say
international tax planning, including BEPS, is their primary tax issue
for 2017.

In keeping with last year’s survey, BEPS recommendations around transfer
pricing (Action Items 8, 9, 10 and 13) generate the greatest concern
among tax executives, cited by 51 percent of respondents. Their concern
is a valid one, as 76 percent of tax executives surveyed currently
include transfer pricing mechanisms in their tax strategy.

While BEPS remains a critical issue for tax executives, strategies for
responding to the initiative vary. A majority (57 percent) of
respondents say they are proactively taking steps toward implementation
based on the Action Item drafts. More than a third (35 percent),
however, plan to wait for individual countries to implement BEPS
measures before acting. Given recent criticism from China and other
nations that the rules may not be appropriately tailored to the
developing world, it remains to be seen how global implementation will
shake out.

Despite implementation uncertainty, some BEPS reporting rules are
already coming into play, with country-by-country reporting rules
beginning for tax years starting on or after Jan. 1, 2017. Nine out of
10 (91%) tax executives anticipate meeting the initial
country-by-country reporting deadline at the end of this year.

“When the OECD first released the BEPS Action Plan, implementation
seemed far off in the future for most multinationals,” said Paul
Heiselmann, national managing partner of Specialized Tax Services at BDO
USA, LLP. “Now that the country-by-country reporting deadline is
looming, businesses need to take steps to proactively adjust their
financial reporting practices and prepare for future changes related to
transfer pricing mechanisms.”

Additional Findings of the 2017 BDO Tax Outlook Survey:

Tax Executives Look to State and Local Incentives to Offset Tax Burden

Looking beyond slow-moving federal and international tax reforms, tax
executives turn to state and local incentives to reduce their tax
burden, as states themselves try to balance gathering revenue with
attracting growth. When asked what programs they take advantage of in
the U.S. market, 91 percent of respondents cited income or franchise tax
credits and exemptions. Eighty-eight percent use sales tax refunds and
exemptions, and 86 percent rely on property tax abatements and
exemptions. Just over half (52 percent) benefit from training grants,
and 37 percent take advantage of financing programs.

More Public Companies are Filing for R&D Tax Credits

The passage of the Protecting Americans from Tax Hikes (PATH) Act of
2015 put an end to the tumultuous history of the federal research and
development (R&D) tax credit after years of repeated expirations and
renewals at the eleventh hour. In the year following the implementation
of the PATH Act, the survey found that use of the credit grew.
Eighty-two percent of tax executives surveyed make use of some form of
R&D credit, up from 75 percent in 2016. The majority (64 percent) use
both federal and state credits, while one in three (33 percent) claim
only the federal credit.

The BDO Tax Outlook Survey is a national telephone survey
conducted by Market Measurement, Inc., an independent market research
consulting firm, whose executive interviewers spoke directly to 100 tax
executives at public companies, using a survey conducted within a
scientifically developed, pure random sample.

BDO is the brand name for BDO USA, LLP, a U.S. professional services
firm providing assurance, tax, advisory and consulting services to a
wide range of publicly traded and privately held companies. For more
than 100 years, BDO has provided quality service through the active
involvement of experienced and committed professionals. The firm serves
clients through 63 offices and more than 450 independent alliance firm
locations nationwide. As an independent Member Firm of BDO International
Limited, BDO serves multi-national clients through a global network of
1,408 offices in 154 countries.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S.
member of BDO International Limited, a UK company limited by guarantee,
and forms part of the international BDO network of independent member
firms. BDO is the brand name for the BDO network and for each of the BDO
Member Firms. For more information please visit: www.bdo.com.

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